By Warren Lasko
More with sadness than in anger, one
studies the latest grim statistics com-
ing out of FHA and Ginnie Mae. The
FHA program, the seam in the cloth of
homeownership for more than half a
century, is slowly self-destructing. And
with it, the fabric itself unravels.
As a result of the suicidal changes
imposed by HUD last July, FHA vol-
ume has been declining while the rest
of the mortgage market has seen dra-
matic increases. Approximately
100,000 families each year are simply
no longer able to afford a home. At the
same time, another 150,000 low-risk
borrowers are being discouraged from
using the program. Some are driven
away by the higher costs of FHA rela-
tive to conventional loans. Others are
steered toward the conventional mar-
ket by Realtors intimidated by the ex-
cessively complicated FHA applica-
tion process.
because of the erratic data and analy-
ses upon which these policies are based.,
In its calculation of the economic value
of FHA's single family fund, con-
tained in a recently released actuarial
analysis, Price Waterhouse makes a
correction from last year's estimate of
a positive $2.6 billion value to a nega-
tive $2.7 billion. It's staggering that
they, and HUD, can so calmly admit to
what is, in effect, a $5.3 billion mis-
judgment. A reasonable observer can
only conclude that this year's, and
every year's, estimate may also be off
by that much or more in either direc-
tion. Further, one wonders how sound
public policy can be derived from such
erratic and seemingly unreliable esti-
And that's not the only disturbingly
confused signal we're receiving from
HUD. On the one hand, we've heard
the Department's testimony to Con-
gress that the FHA still has serious
financial problems and that rolling back
last July's changes would be an egre-
gious mistake. On the other hand, we
hear from Ginnie Mae itself that the
1990 reforms are undermining the
safety and soundness of the Ginnie
Mae securities program. Ginnie Mae
has said that its own worst case sce-
nario falling interest rates com-
bined with program runoff - is al-
ready taking place. Total loans in the
GNMA program decreased in Decem-
The situation is all the more frustrating ber 1991 for the first time in its known
I witness the slow death of the FHA at
almost every stop I make in my travels.
No matter where I am, in any region of
the country, I'm told time and time
again that the 1990 changes are keep-
ing low- and moderate-income fami-
lies out of the housing market, that the
least-risky borrowers are opting out or
not considering the program at all, that
one of the most successful social pro-
grams this county has ever seen is
dying on the vine.
history. Notwithstanding the devastat-
ing social impact of the changes, such,
conflicting information makes it virtu-
ally impossible to take even HUD's
"fiduciary responsibility" arguments
seriously.
The Ginnie Mae runoff portends fur-
ther consequences for mortgage bank-
ers who are issuers of Ginnie Mae
securities. With the decrease in the
total portfolio and the fact that delin-
quency rates have increased substan-
tially, we can anticipate a great deal of
hand-wringing from HUD. Ginnie
Mae has expressed concern that as
more loans are refinanced convention-
ally, poorer quality loans will come to
represent a greater proportion of the
Ginnie Mae portfolio. As delinquency
rates rise, I would not be surprised to
hear calls for higher fees based upon
accusations that lenders are not servic-
ing adequately. All of which creates a
vicious cycle as losses lead to higher
fees that in turn lead to a growing
percentage of poorer loans and to even
higher losses, until the FHA finally
implodes on itself.
But it's still too soon to write the
FHA's obituary. MBA is committed
to working with Congress and the
Administration to restore the pro-
homeownership mission of the pro-
gram while maintaining its fiscal
soundness. This commitment is in no
way intended to undermine the inter-
ests of firms that are not FHA lenders
or that specialize in jumbo or non-
conforming products. The decrease in
FHA volume affects every lender in
every market and even those who fi-
nance more expensive homes must be
concerned. If 100,000 fewer families
can afford to buy homes each year,
many multiples of that number will not
move up the housing ladder. For every
family that cannot buy a starter home,
another family cannot sell its first home
and buy a second, and so on. The
buying and selling of that first house
sets off a chain reaction, the reverbera-
tions of which are felt in weaker home
values through even the top price ech-
elons of the market.